I have installed my Arduino Diecimila Atmega168 in the root C: folder - where it stated it did not have a standard sketchbook location and would create one (and stop talking about itself in third person).

Now the Arduino setup and connection works, but the interaction with the menu, the uploading, the entire amount of interactions with the arduino 0017 environment feel extremely sluggish, like it's waiting for something all the time.

Sorry already found it, somehow I can not properly use Bluetooth and Arduino together at the same time. It's a bit annoying to disable bluetooth everytime I want to use with Arduino and enabling it everytime I need to send files to/from my phone. But at least it is a functional work-around.